Buy Low, Sell High

Something curious happened this summer: The wholesale price of lobster reached all-time lows, yet retail prices to the consumer stayed as high as ever.

By July, there were widespread reports of a disaster in the lobster industry. Wholesale prices had dropped to $2.20 per pound, and fishermen were complaining that it wasn’t even worth their time and fuel to go out and catch them. Up and down the New England coast, harbors were filled with idle lobster boats. Yet shoppers kept paying $9-12 per pound for lobster at the supermarket or local gourmet market. At your favorite steak house, things were even worse: $18-25 per pound was still the going rate for a jumbo. Obviously, forces were at work that went beyond the normal laws of supply and demand.

Historically, lobster was a poor man’s dish. The supply was so enormous that they were harvested simply by picking them up along the shoreline, and fishermen used to bait their hooks with them. In colonial America, they were fed to prisoners and indentured servants; household servants in Massachusetts rebelled, and stipulated in their contracts that they wouldn’t be forced to eat lobster more than three times each week. It wasn’t until after World War II that prices began to rise, and they have remained high ever since.

James Surowiecki, in a recent New Yorker piece, makes some interesting observations about lobster prices. He notes that restaurants are loath to lower lobster tabs for a few reasons, even if the wholesale price drops. For one thing, a low price creates suspicion: Why is this lobster cheaper than it normally is, and what could be wrong with it? For another, the high price of lobster makes other dishes on a restaurant menu appear to be reasonable---particularly in the seafood section.

The most compelling reason, though, is that high prices are psychologically linked to enjoyment. Recent studies on wine tasting indicate that when consumers taste wine blind, they prefer cheaper wines. Only when they are aware of the label and the cost do they express a preference for the more expensive bottle. The same dynamic is likely true in other consumer products as well. Quite simply, if lobster didn’t exist, we would have to invent it.

Mark Spivak is the author of Iconic Spirits: An Intoxicating History, published by Lyons Press (Globe Pequot); for more information, go to amazon.com